Mortgage Glossary

The mortgage glossary helps you understand mortgage terms that are used throughout our mortgage process. Use the below menu to navigate alphabetically and find the term that you are looking for.

A

Abstract of title

The summarized history of all of the titles, transfers and legal actions that are connected to a property.

Adjustable Rate Mortgage

An adjustable rate mortgage (or) ARM, is a loan type where the interest rate is locked in for a specific time period but can fluctuate annually, depending on the federal prime rate, after the locked period expires. The fluctuating interest rate can increase or decrease the amount of your monthly payment.

Adjustment Date

The date on which the interest rate changes for an adjustable rate mortgage.

Alimony

Periodic payments made under a divorce decree or a written separation agreement toward the support of a former spouse.

Administrative Fee

A fee charged by the lender to cover the administrative costs of processing your loan.

American Land Title Association (ALTA)

A national association of title insurance companies, abstractors, and attorneys specializing in real property law. The association represents and speaks for the title insurance and abstracting industry and establishes standard procedures and title policy forms.

Amortization

A loan repayment plan in which a loan is repaid in fixed payments of principal and interest.

Amortization Schedule

The breakdown of individual payments throughout the life of an amortized loan, showing both principal contribution and interest payments.

Annual percentage rate (APR)

The annual cost of a loan expressed as a yearly rate. For mortgage loans, excluding home equity lines of credit, it includes the interest rate plus other charges or fees.

Appraisal

An analysis performed by a qualified individual to determine the estimated value of a home.

Appraisal Fee

A fee charged by an appraiser for the appraisal of a particular property. Generally, the fee for the appraisal is passed on to the borrower by the lender.

Appraised value

An opinion of value reached by a qualified independent third-party, known as an appraiser, based upon knowledge, experience, and a study of pertinent data.

Appraiser

An independent third party qualified to estimate the value of real estate and personal property.

Asset

Any item of value which a person owns.

Assignment

The transfer of a mortgage from one person to another.

Assumable Mortgage

An existing mortgage that can be taken over by a qualified buyer when a home is sold.

Assumption

A clause that allows a seller to transfer the existing mortgage to the new home buyer.
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B

Balloon Mortgage

A loan type that requires borrowers to make smaller payments for a certain period of time and one large payment for the remaining balance due at the end of the loan term. hese types of mortgages are typically issued with a short-term duration.

Balloon Payment

The final payment that is made at the maturity date of a balloon mortgage and pays the loan in full.

Bankruptcy

A legal proceeding in which a borrower who owes more debt than his or her assets may be discharged from repaying his or her debts.

Blanket Mortgage

A single mortgage that is secured by more than one parcel of real estate.

Bond

A document representing a right to certain payments on underlying collateral.

Building Code

Regulations that ensure the safety and material compliance of new construction within a municipality. Building codes are localized to ensure they are adequate to meet the risk of common hazards.

Buydown

A loan transaction that involves fees paid by the borrower to reduce the monthly payment amount either for the entire loan term or for an initial term.
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C

Cash Out Refinance

A mortgage refinancing option where the new loan amount is for a larger amount than the existing loan to convert home equity into cash. This additional cash can be used by the borrower for any purpose.

Cash to Close

The amount that the borrower has to pay at Closing for getting a mortgage.

Cap

Associated with Adjustable Rate Mortgages. A limit on how high monthly payments or how much interest rates may change within a certain time period or the life of the mortgage.

Certificate of Eligibility

A document issued by the Veterans Administration that certifies eligibility for a VA loan.

Certificate of Occupancy

Written authorization given by a local municipality that allows a newly completed or substantially renovated structure to be lived in.

Certificate of Title

Written opinion of the status of title to a property, given by an attorney or title company. This certificate does not offer the protection given by title insurance.

Changed circumstance

A situation that requires the lender to provide a revised Loan Estimate or Closing Disclosure before closing, that describes any changes in fees or other loan terms.

Clear Title

A title that is free of clouds, liens, disputed interests or legal questions as to ownership of the property.

Closing

Typically, the final step in obtaining a home loan. The closing includes delivering a deed, signing loan documentation, and disbursing funds necessary to complete the sale and loan transaction. Also known as "settlement."

Closing Costs

The total of all the items that must be paid at closing related to your new mortgage.

Collateral

Property pledged as security for a debt.

Commitment Letter

A written offer from a lender to provide fi nancing to a borrower. The commitment letter states the terms under which the lender agrees to provide fi nancing to the borrower.

Condominium

A development where individual units are owned, but common areas and amenities are shared equally by all owners.

Conforming Loan

A loan that does not exceed the maximum loan amount allowed for the most common mortgage investors. Loans that exceed this amount are referred to as “jumbo mortgages”.

Construction Loan

A short term loan that is used to finance the construction of a new home.

Contract

A verbal or written agreement to do or not to do a certain thing for consideration.

Conventional Mortgage

A mortgage that is not insured or guaranteed by a government agency.

Convertible ARM

An adjustable-rate mortgage that can be converted to a fixed-rate mortgage if certain conditions are met.

Cooperative (Co-op)

A form of ownership where each resident of a multi-unit property owns a share in a cooperative corporation that owns the building. With each resident having rights to a specific unit within the building. A mortgage that is not insured or guaranteed by a government agency.

Cosigner

Another person who signs your loan and assumes equal responsibility for it.

Cost of Funds Index (COFI)

An index that may be used to determine the interest rate changes of an adjustable rate mortgage (ARM).

Covenant

A stipulation in any mortgage that, if not met, can be cause for the lender to foreclose.

Credit

A loan of money for the purchase of property, real or personal. Credit is either secured by an asset, such as a home, or unsecured.

Credit History

A record of debt payments, past and present. Used by mortgage lenders in determining credit worthiness of individuals.

Creditor

A person to whom money is owed.

Credit Report

A report detailing the credit history of a borrower and typically used when determining the creditworthiness of a borrower.

Credit score

The value that indicates your creditworthiness that is based on information provided by your creditors and lenders. Credit scores are calculated by the credit reporting agencies.
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D

Debenture

An unsecured bond or note.

Debt-to-income ratio (DTI)

DTI is the ratio of borrower's monthly debt and debt-related costs, such as taxes, fees, and insurance premiums to their monthly gross income.

Deed

A legal document that conveys ownership of a property.

Deed of Trust

This document, referred to as a mortgage in some states, pledges a property to a lender or trustee as security for the repayment of a debt.

Deed Stamp

A tax that is required in some municipalities if a property changes hands. The amount of this tax can vary with each state, city and county. For our comparison purposes, this fee is considered a tax or other unavoidable fee.

Delinquency

A loan payment that is past due.

Department of Veterans Affairs (VA)

An agency of the federal government that provides services and guarantees residential mortgages made to eligible veterans of the military services.

Deposit

Cash paid by the buyer when a formal sales contract is signed. The deposit is usually held by a third party until the sale is complete.

Disburse

To pay out on the loan.

Disclosures

Information that must be given to consumers about their financial dealings.

Discount Points

Money paid to a lender at closing in exchange for lower interest rates. Each point is equal to 1 percent of the loan amount.

Down Payment

A portion of the purchase price paid upfront at closing.
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E

Earnest Money

Deposit made by a buyer in evidence of good faith when the purchase agreement is signed.

ECOA (Equal Credit Opportunity Act)

Federal law requiring creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Encroachment

A property improvement or obstruction that physically intrudes upon the property of another.

Encumbrance

Anything that affects or limits title to property, such as mortgages, liens, leases, easements, or restrictions.

Endorser

A person who signs ownership interest over to another party.

Equity

An owner’s financial position in a property. Equity is the difference between the property’s value and the amount that is owed on mortgages.

Escrow

Funds a lender collects and holds in an account to pay real estate taxes, homeowners insurance, other periodic debts against the property, and mortgage insurance (if applicable), on behalf of a customer. These funds are sometimes called "impounds or reserves" and refer to funds or documents held by an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

Escrow Account

The account that funds are held in by the lender for the payment of real estate taxes and/or homeowner’s insurance. Can also refer to the account that funds are held in for the completion of repairs or improvements to a property that cannot be completed prior to closing.

Estate

The nature and extent of interest that an individual has in real property (degree of ownership).
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F

Fair Housing Act

Prohibits discrimination in real estate transactions because of race, color, religion, sex, handicap, familial status (families with children), or national origin.

Fannie Mae (FNMA)

Federal National Mortgage Association, also known as Fannie Mae, is a government-sponsored enterprise (GSE). Fannie Mae was established to provide local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing

Federal Housing Administration (FHA)

The federal agency under the Department of Housing and Urban Development (HUD) that insures certain residential mortgages.

Fee Simple

Absolute ownership of real property; the greatest possible interest a person can have in real estate.

FHA Mortgage

A mortgage insured by the Federal Housing Administration (FHA). FHA loans are also known as government mortgages.

Finance Charge

The total dollar amount credit will cost.

Finders Fee

A fee paid to a mortgage broker for fi nding a mortgage for a potential borrower.

Firm Commitment

A lending institution’s agreement to give a loan to a specific borrower on a specific property.

First Mortgage

A mortgage that is the first loan recorded in the public record and generally the primary loan against a property.

Fixed Rate Mortgage

A mortgage with an interest rate and monthly principal-and-interest payment amount that remains the same for the life of the loan.

Float

A term that describes the interest rate for a loan that has not yet been guaranteed by a lender. If the lender has not yet guaranteed or locked the interest rate, it is floating and could change prior to closing

Flood Insurance

A form of hazard insurance required by lenders to cover properties in flood zones.

Foreclosure

Legal process by which the lender forces the sale of a property because the borrower has not met the mortgage terms.

Freddie Mac

Federal Home Loan Mortgage Corporation (FHLMC), also known as Freddie Mac, is a public government-sponsored enterprise (GSE) that buys mortgages on the secondary market, pools them, and sells them as a mortgage-backed security to investors on the open market. This secondary mortgage market increases the supply of money available for mortgage lending and increases the money available for new home purchases.
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G

Ginnie Mae

GNMA, also known as Ginnie Mae, or the Government National Mortgage Association, is a GSE (government-sponsored enterprise), wholly owned by the government and part of the Department of Housing and Urban Development. The Ginnie Mae guarantee allows mortgage lenders to obtain a better price for their loans in the capital markets. Lenders then can use the proceeds to make new mortgage loans available to consumers.

Government Mortgage

A mortgage that is guaranteed by the Department of Veterans Affairs (VA) or, is insured by the Federal Housing Administration (FHA).

Grantee

The person to whom an interest in real property is conveyed.

Grantor

The person conveying an interest in real property.

Gross income

Total income before taxes or expenses are deducted.

Gross monthly income

The total amount earned by a borrower each month.
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H

Hazard Insurance

An insurance policy that protects the property against losses, combining liability coverage and hazard insurance. Also referred to as homeowner’s insurance.

Home Equity Line of Credit (HELOC)

A loan secured by real property, usually in a subordinate position, that allows the borrower to receive the loan proceeds in the form of multiple advances up to a limit that represents a maximum percentage of the borrower’s equity in a property.

Homeowners Association Dues

Fees a homeowner is required to pay to a condominium or homeowners association (HOA) for maintenance of common areas.

Housing and Urban Development (HUD)

A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.

Housing Ratio

The ratio, expressed as a percentage, that results when a borrower's housing expenses are divided by his/her monthly income. Also referred to as a front-end ratio or a top ratio.
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I

Impounds (or reserves)

A portion of a borrower's monthly payments held by the lender to pay for taxes, insurance and other items as they become due.

Impound Account

A fund set aside for future needs, such as an escrow or reserve account.

Index

A published interest rate, such as the prime rate, that lenders use to establish interest rates charged on mortgages or to compare investment returns.

Initial Interest Rate

The original, starting interest rate of a loan at the time of closing. This rate changes for an adjustable-rate mortgage (ARM).

Insured Mortgage

A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (PMI).

Interest Rate

The cost a customer pays to a lender for borrowing funds over a period of time expressed as a percentage rate of the loan amount.

Interest Rate Ceiling

The maximum interest rate for an adjustable-rate mortgage, as specified in the mortgage loan note.

Interim interest

The interest accrued between the date a loan closes and the end of the month, which is paid at the time of closing.

Investment Property

Real estate property owned with the intent to earn income, and not intended for owner occupancy.
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J

Joint Tenancy

The ownership of property by two or more persons with the survivor taking the share of the deceased.

Judgment

Final determination by a court of law regarding the rights and claims of the parties to a legal action.

Judgment Lien

A lien on the property of a debtor resulting from a judgment.

Jumbo Mortgage

A mortgage with loan amount larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
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L

Late Charge

Penalty paid by a borrower when a payment is made after the stated due date.

Late Payment

A payment made after the grace period stipulated in the note.

Lease

A written contract between a property owner and a tenant that expresses the conditions under which the tenant may possess the real estate for a specified period of time and rent.

Legal Description

A legal property description that is sufficient to locate and identify the property without verbal testimony.

Lender

The bank, mortgage broker or financial institution providing the loan funds to a borrower.

Lien

A legal claim by one party on the property of another as security for a debt.

Lifetime Interest Rate Cap

The limit on how much an interest rate can increase above the initial interest rate over the life of an adjustable-rate mortgage or variable-rate home equity line of credit.

Lifetime Payment Cap

On an adjustable rate mortgage, a limit on the amount that payments can increase or decrease over the term of the loan.

Line of Credit

An agreement by a financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

Liquid Asset

An asset that is easily converted into cash.

Loan Amount

Borrowed money that is usually repaid with interest.

Loan Commitment

The commitment letter or loan commitment states the terms under which the lender agrees to provide financing to the borrower.

Loan Estimate

A document delivered or mailed to customers by a lender within 3 business days of mortgage application. The Loan Estimate provides an estimate of closing costs and fees as well as the loan terms.

Lock Expiration Date

The date on which the interest rate lock-in period ends, allowing the interest rate to fluctuate with the market.

Loan Origination

The process by which a mortgage lender creates a mortgage secured by real property.

Loan Servicing

Loan servicing is the process by which a company (mortgage bank, servicing firm, etc.) collects interest, principal and escrow payments from a borrower.

Loan Term

The number of months that the borrower will make monthly mortgage payments.

Loan to Value Ratio

The loan amount divided by the lesser of the selling price or the appraised value expressed as a percentage. Also referred to as LTV.

Lock Period

Number of days during which the interest rate is secured and not subject to market fluctuation.
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M

Manufactured Home

A house built entirely in a factory, transported to a site and installed there. Manufactured Housing are subject to a Federal building code administered by HUD.

Margin

The number of percentage points added to the interest rate index to determine the fully indexed interest rate on an ARM.

Maturity date

The date when a loan's final payment or loan balance must be paid in full.

Mortgage

The legal document used by a borrower to pledge their property as security in order to obtain a loan.

Mortgage Banker

A company or individual that originates mortgages for resale in the secondary mortgage market.

Mortgage Insurance

Insurance provided by a private company protecting the mortgage lender against loss resulting from a mortgage default. It is generally required if the loan amount is more than 80% of the home’s value.

Mortgage Note

A legal document signed by a borrower as an acknowledgement and agreement to repay a sum of money at a stated interest rate for a specific term.

Mortgage insurance premium

The up-front and/or periodic charges that the borrower pays for mortgage insurance.

Mortgagee

The lender who provides the loan funds to the borrower.

Mortgagor

The borrower who receives funds and pledges their property as security for the debt.
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N

Negative Amortization

A gradual increase in mortgage debt that occurs when the periodic monthly payment is not sufficient to cover the monthly principal and interest due. The unpaid interest is added to the principal balance.

No Cash Out Refinance

A loan that pays off the existing mortgage balance on the property and does not provide the borrower with any additional cash.

Non-Conforming Loan

A mortgage that exceeds the maximum loan amount limit set by the two Federal agencies, Fannie Mae and Freddie Mac.

Non-liquid Assets

Any assets that cannot easily be converted into cash.

Notary Fee

A fee for a licensed notary public to certify your signature on the loan documents.

Note

A Legal document executed by the borrower stating the terms of a debt and a promise to repay it.

Note Rate

The interest rate stated on a mortgage note.
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O

Original Principal Balance

Total principal amount owed on a loan before any payments are made.

Origination Fee

An upfront fee charged by the lender, usually expressed as a percent of the loan amount. The fee normally covers the processing expenses for originating a mortgage loan.

Origination

The entire process of obtaining a mortgage loan from the lender, to final loan closing.

Owner Financing

A purchase in which the seller provides all or part of the financing.
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P

Payment Cap

The maximum percentage increase (or) decrease in the payment on an ARM at a payment adjustment date regardless of the change in interest rates.

Payoff

The complete repayment of a loan in full.

Per diem interest

Interest calculated from the day of closing to the first day of the following month.

PITI

Stands for principal, interest, taxes and insurance, which are the components of the monthly housing expense.

Planned Unit Development (PUD)

A housing project that includes common property that is owned and maintained by a homeowners’ association.

Points

An upfront fee charged by the lender as part of the charge for the loan, expressed as a percent of the loan amount.

Power of Attorney

A legal document that authorizes another person to act on one’s behalf.

Pre-Qualification

Procedure to determine how much money a potential homebuyer will be eligible to borrow prior to actually applying for a loan.

Prepaids

Fees collected at closing to cover real estate taxes, interest, and insurance.

Prepayment

A payment made by the borrower over and above the scheduled mortgage payment to reduce the principal balance of a loan before the due date.

Prepayment Penalty

A charge imposed by the lender if all or part of a loan is paid off before it is due.

Primary residence

Property that is occupied or intended to be occupied as a borrower's main home.

Principal

The amount borrowed or the remaining unpaid balance of a loan excluding unpaid accrued interest.

Principal Balance

The outstanding balance of principal on a loan. Principal balance does not include interest or taxes.

Property Taxes

A tax calculated on the property by the government, which is paid by the owner of the property.

Purchase Agreement

A contract signed between a buyer and seller of real property that states the terms of the sale.
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Q

Qualification

The process of determining whether a prospective borrower has required credit, sufficient assets and income, to repay a loan.

Qualifying Ratios

The ratio of monthly housing expense (or) monthly total expense to borrower's monthly income. These guidelines stipulated by lender determine how much a borrower can borrow.

Quitclaim Deed

A deed that implies no warranty.
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R

Rate Lock

An agreement by lender to hold the interest rate of the loan for a specific period of time.

Real Estate Settlement Procedures Act (RESPA)

A consumer protection law that governs acceptable practices and fees in real estate transactions.

Realtor

A member of the National Association of Realtors licensed to negotiate the purchase and sale of real estate on behalf of buyers and sellers.

Reconveyance Fee

A fee charged by title companies for removing the current lender’s lien on your property title when you refinance.

Recording

The act of entering legally executed real estate documents in a book of public records.

Recording Fees

A fee charged by government for registering or recording a real estate purchase or sale, so that it becomes a matter of public record.

Refinance

The process of paying off any existing mortgages on a home with a new mortgage loan.

Remaining Balance

The amount of principal owed on a loan that has not yet been fully repaid.

Remaining Term

The number of payments left to be made on a loan before it is fully amortized.
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S

Safe Harbor

A set of rules and regulations that will guarantee compliance with the law, if followed.

Sales Contract

A contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Second Home

A residence other than the borrower's principle residence where the borrower intends to live for a portion of each year. Also referred to as a vacation home.

Second Mortgage

A subordinate mortgage in addition to a first mortgage on the property.

Secured Loan

A loan that is backed by collateral.

Security

The collateral offered to a lender in exchange for a loan.

Security Instrument

Mortgage or Deed of Trust evidencing the pledge of real estate as collateral for the loan.

Security Interest

The lender’s right to take property that has been offered as security.

Settlement Costs

Fees associated with the closing of a mortgage loan, such as origination fees, discount points, or payments for title insurance, attorney services, and taxes.

Survey

A measurement of land, prepared by a licensed surveyor showing the property's boundaries, and relationship to surrounding tracts.

Sweat Equity

A non-monetary contribution to the construction of a property in the form of labor or services.
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T

Tax Lien

A legal claim by the government against property for unpaid taxes.

Term

The number of months that the borrower has to make the payments until a loan is paid in full.

Title

A legal written instrument that shows a person's lawful possession of a property.

Title Company

A company that confirms the legal claims to a property and insures a homeowner and lender against a loss that could result from a title dispute.

Title Insurance

An insurance policy that protects a lender (and sometimes the homebuyer) against any loss due to disputes over the ownership of a property.

Title Search

An examination of the public records that discloses the past and current facts about the ownership of a property to ensure that there are no liens, encumbrances or other claims outstanding.

Total Closing Costs

The total fees associated with the closing of a mortgage loan, such as origination fees, discount points, or payments for title insurance, attorney services, and taxes etc.

Truth in Lending Act

A Federal regulation requiring full disclosure of credit terms by a lender to a borrower.
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U

Underwriting

A loan origination process of analyzing risk and evaluating the loan application. Underwriting usually involves an in depth analysis of the borrower’s credit history and their ability to repay the loan.

Upfront Mortgage Insurance Premium

A fee required for FHA loans, which can be financed as a part of the loan amount or paid by the borrower in closing.
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V

VA Loan

A mortgage loan for veterans guaranteed by the Department of Veterans Affairs (VA).

Vacation Home

A residence other than the borrower's principle residence where the borrower intends to live for a portion of each year. Also referred to as a second home.
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W

Waive Escrows

Authorization by the lender for the borrower to pay the real estate taxes and insurance directly.

Warehouse Lender

A firm that lends to temporary lenders against the collateral of closed mortgage loans prior to the sale of the loans in the secondary market.

Warranty

A promise contained in a contract.

Wholesale lender

A lender who provides loans through mortgage brokers or correspondents.
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